Editor’s note: Contributor Kai Lukoff is based in Beijing and is co-founder of the startup blog TechRice.

Twenty years ago, Zhongguancun was but farming fields and small houses, far from the city center of Beijing. The ‘cun’ at the end of Zhongguancun literally means “village.” As with much else in China, the change has come lightening fast.

Today, Zhongguancun is China’s closest equivalent to Silicon Valley. It’s host to electronics super malls, research centers, publicly-listed tech giants, and hundreds of startups. During my walk to work between twenty-story office towers, it’s hard to imagine this land was farmed but one short generation ago.

Here are three reasons why Zhongguancun (or the larger Haidian district) has grown into China’s top tech hub:

1) Academic Hub
Right next door are China’s top two universities, Peking University and Tsinghua University. But the northwest of Beijing is also home to countless other universities, including technical universities like USTB, BIT, BUPT, and Beihang. It’s the raw talent pool that has American industry leaders and politicians bemoaning a new “engineering gap.”

The transition from farming village to technology hub began with technology research. In addition to the universities, funding came from the Chinese Academy of Sciences and later multinational corporations (MNCs). As Daniel Shi notes on Quora, “There is just a ridiculous number of MNCs with their R&D centers in Beijing: Nokia, Ericsson, Motorola, Sony Ericsson, Microsoft, IBM, Sun, Oracle, BEA, Alcatel Lucent, Google. Nowhere in the US do you have such a huge concentration of R&D organizations in one city.”

Soon, a small market emerged in Zhongguancun to sell electronics to students and academics. Jack Xu, founder of lite-blog Diandian, describes a serendipitous meeting in that scene:

In 1997, Zhongguancun Technology Park was a tiny village. It had only two buildings, and an assortment of entrepreneurs hustling their programming skills, taking government contracts, and hiring [Tsinghua] students like me to do the work. At times they might get RMB 100,000 for a contract, but pay us only RMB 5000, thus retaining 95% for themselves. Back then I could make a mere RMB 2000 a month, 1000 for myself and 1000 for my parents, so they wouldn’t need to farm anymore. To me, it was a responsibility, to survive on my own as early as possible. It was also because of my work in Zhonguancun that I became a well-known programmer in a small circle and later a real opportunity came along.

That real opportunity was Jack Xu’s meeting with Joseph Chen in 1998. Today, Chen is the CEO of the social network Renren (NYSE: RENN), where Xu worked for five years, including as VP of the Interactive Division.

2) Government and Media
In America, an entrepreneur hears “government” and runs the other way. In China, government is best kept close, out of choice or necessity. The Internet is one of the most private of industries in China, one of the few without huge state-owned firms, but the government still plays a key role.

At the early stage it can be government contracts, subsidized office space in a tech park, or financing from a government-affiliated research institution. The government wants to build Beijing as a showcase capital in all aspects, so there’s extra funding for tech too.

Once a startup reaches scale, government connections are key to everything from payment licenses to “content management.” When your video website is blocked because it was found to contain sensitive political or pornographic content, who you gonna call?

Virtually all business in China is of “strategic national interest,” but some is extra-strategic. All media firms or even sites with user-generated content must have a big presence, if not their headquarters, in Beijing.

3) A Virtuous Cycle
A tech hub can build momentum that feeds upon itself. Startup founders come out of research centers and large technology firms, drawing upon their network for advice, seed funding, and talented employees. When the boss leaves to launch his own venture, it’s common for half of his division—the talented half—to go with him. The employee networks of Beijing-based tech giants like Baidu, Sohu, and Sina are becoming Chinese versions of the “PayPal Mafia.”

In “Why Startup Hubs Work,” Paul Graham of Y-Combinator writes, “I think there are two components to the antidote: being in a place where startups are the cool thing to do, and chance meetings with people who can help you. And what drives them both is the number of startup people around you.” Like Silicon Valley, Zhongguancun also has a critical mass of people who are crazy enough to do startups.

Beyond Beijing

I wrote that Zhongguancun is China’s closest equivalent of Silicon Valley. The caveat is because there’s a lot happening elsewhere in China too. China’s three Internet giants are Baidu, Alibaba, and Tencent, but only search giant Baidu is headquartered in Beijing.

Hangzhou is home to the Alibaba Group and its e-commerge empire (Taobao, TMall, Alipay, and Alibaba.com). Neighboring Shanghai is rich in gaming, MNCs, and venture capitalists, although they fly up to Beijing to do most of their deals. As far as tech hubs, this area is second after Beijing.

Shenzhen is the headquarters of Tencent, China’s largest social networking and gaming company. Equally impressive is the hardware hacking coming out of the region. It’s home to countless entrepreneurial Shanzhai electronics manufacturers who copy, mix-and-mash, to create ”Motoloba” handsets and “commemorative” Steve Jobs Android tablets. When you hear about “sub-$100 Chinese-flavored Android devices”, it’s Shenzhen leading the charge.

Other up-and-coming hubs include Dalian, Chengdu, and Xi’an,

The Edge

Silicon Valley is often said to draw top talent because it has one of the best living environments on earth. No one would say that about Beijing.

Beijing is an acquired taste, one that’s often smoky with pollution. In a Sinica Podcast discussing the soul of Beijing, China hand Jeremy Goldkorn of the blog Danwei.org called it “the anti-lifestyle capital, the anti-San Francisco.” The unpleasantness of the city, the lack of Shanghai’s creature comforts or Shenzhen’s sunshine, gives it an edge. There’s a gritty determination to seize the moment, whatever the obstacles in the way.

One friend told me that Kai-fu Lee was recently asked why his startup incubator InnovationWorks wasn’t based in picturesque Chengdu, where the cost-of-living is low and the ladies are said to be the fairest in all of China. Lee jokingly replied to his entrepreneurs that when they’re happy and relaxed, he’s not.

But do not mistake it for a city of automaton entrepreneurs. Beijing is at once ”the center of authority and a hotbed of creative thinking” as Evan Osnos writes in “City of Dreams.” There are leaps of creativity. Sites that start as copycats evolve to become unrecognizable from the original, like the red-hot microblog Sina Weibo that today bears little resemblance to Twitter.

When TechCrunch held its first international Disrupt Conference, it was right to come to Beijing. It’s dynamic, messy, and very different. But Silicon Valley aside, there’s no better place on earth for tech right now.

The future for Internet services pioneer Yahoo remains uncertain, to put it mildly.

Currently a beleaguered takeover target sans visionary CEO (although one could argue recently fired Carl Bartz never served that role either), Asian e-commerce powerhouse Alibaba Group is apparently going to great lengths to re-acquire the stake Yahoo has in the company.

According to Reuters, Alibaba is seeking up to $4 billion in debt financing to bankroll buying back Yahoo’s 40 percent stake in the Chinese e-commerce behemoth.

Sources tell Reuters that financial advisory group Rothschild has delivered term sheets to banks, requesting underwritten proposals for the debt financing with a term of up to three years. One source said the term sheet involves commitments of $1 billion with an expected final hold of $400 million.

Alibaba is also one of the partners of a consortium that is plotting to swallow Yahoo whole, and founder Jack Ma recently said at an industry event that he would indeed be “very interested” in acquiring the global Internet giant.

According to a recent report from Bloomberg BusinessWeek, Alibaba has engaged in talks with Softbank, Blackstone Group and Bain Capital about making a bid for Yahoo.

Other bidders include a group formed by Silver Lake, Microsoft and Andreessen Horowitz in addition to a partnership between TPG and Greylock Partners. To be continued, no doubt.

Related: Alibaba.com Grows Revenues And Profits, Misses Expectations

Alibaba.com, the massive B2B e-commerce company based in China, this morning published (PDF) its results for the third quarter of the year. The company reported a 11.9 percent increase (to $64 million) in its Q3 net profit, with revenues rising 10.6 percent to $250 million, year-over-year.

This was below Wall Street expectations; Alibaba blamed a weak U.S. economy, a decline in manufacturing, the eurozone debt crisis and on-going platform enhancement activities for missing analysts’ forecasts.

During Q3 2011, Alibaba.com attracted roughly 4 million new users for a total of 72.8 million registered users, and now hosts more than 360,000 new storefronts for a total of 9.6 million.

The number of paying members declined in the third quarter by 27,725, to reach a total of 787,653, for which Alibaba blames the execution of its long-term ‘enhancement’ plans.

Operating expenses rose a considerable 13 percent.

The Alibaba Group, which Yahoo has a 40 percent stake in, has reportedly been in talks with PE firms about making a bid for Yahoo. Microsoft has also signed a non-disclosure agreement with Yahoo to take a good look at its books.

Today at the China 2.0 conference at Stanford, Alibaba Groups’s Jack Ma replied to a pointed question about buying Yahoo with, “We are very interested in Yahoo. Our Alibaba group is important to Yahoo and Yahoo is important to us … All the serious buyers interested in Yahoo have talked to us.”

Those “serious buyers” most likely include Alibaba Group investor Silver Lake Partners, Microsoft, Hellman & Friedman and Andreesen Horowitz, who have all reportedly reached out to Yahoo’s board.

Is Ma’s interest enough to spark consumer and shareholder interest in Yahoo? “Any and all interest [is] welcome,” one shareholder told me, “but Ma has real smarts.”

On the surface Ma is certainly the type of CEO that Yahoo needs post-Bartz, diplomatic, cunning, and a man of (relatively) few words. But would the deal make sense financially?

Alibaba Group’s recent funding from Silver Lake valued it at $32 billion, while Yahoo is at a 16 billion market cap. With Yahoo’s 40% stake in Alibaba Group valued at $12.8 billion, it seems like 80% of the company’s value is based on its Asian assets. Ma has apparently made it clear that he would like to buy back Yahoo’s stake in his own company, and now he can for a bargain basement $3 billion premium –with hundreds of millions of US users thrown in for good measure.

Is the rest of Yahoo worth $3 billion? Probably. Plus Ma has an additional incentive to buy Yahoo because getting all those shares back frees him from his largest albatross shareholder. It’s a no brainer for Alibaba.

Would the Yahoo board take an offer from Ma? That remains to be seen, as the relationship between the two companies has been notoriously strained, most recently suffering because of accusations of unfair play on the part of Yahoo when Ma transferred ownership of Alipay to a separate company.

The sentiment among the former Yahoo employees I spoke to seems to be that Yahoo is so dysfunctional that they can’t see anything like this happening. And then there’s stigma; the general idea is to sell to someone you’re proud of like Google and Microsoft, not someone you used to own. The cultural fit between the Chinese and American companies is also quite awkward, as Sarah Lacy has documented comprehensively.

Despite this, many shareholders are just hoping for a decent price to exit their long-held positions, and Ma might be the company’s only hope for survival intact, as he is interested in Yahoo in its entirety. This is surprising: Yahoo is the type of company that Richard Gere in Pretty Woman would buy, and then break up — the individual pieces are more valuable than the sum of the parts.

Related: Looking up that YHOO ticker on Yahoo Finance is just depressing.

Image: Mick Orlosky

SingleFeed takes an online merchant’s products and delivers this data to comparison shopping engines. The virtue of SingleFeed’s service is that it helps merchants improve engagement, visits and transactions by being listed on more engines. As Vendio says, comparison shopping engines can drive between 15 and 40% of an online store’s monthly visits.

SingleFeed is backed by True Ventures, KPG Ventures, and NetService Ventures.

Vendio says that it will integrate SingleFeed into its multi-channel e-commerce platform, which helps merchants manage sales on an online store, Amazon.com, eBay, Google, and others. SingleFeed’s technology will now be offered to the company’s 250,000 merchants. SingleFeed’s technology and services will also be offered to merchants using Auctiva, Vendio’s sister company.

Chinese e-commerce company Alibaba acquired Vendio a year ago.

A fairly unnoticed story percolated through the interwebs this weekend about Alibaba’s CEO and hundreds of employees being implicated in what amounts to a payola scandal. Alibaba is a site that allows you to buy the worst junk imaginable. They represent over 500,000 factories in China. It is a sourcing site full of fake laptops, poorly made clothing, and potentially life-threatening auto parts. And, best of all, it was acting as a middleman to actual criminals.

I’m reporting this as a warning. CE makers have drilled it into our heads that you can make low-priced, high quality electronics. You cannot. It is, on the aggregate, impossible. That $500 laptop bears an unseen price.

I’ve always been very wary of Alibaba and, to a certain extent, sites like Brando and Harbor Freight. Many decry the sad state of American manufacturing but these companies still sell billions in janky garbage that washes up here in huge containers and is sold throughout our 50 great states and, more important, the rest of the developed and developing world. All of those cheap tools you find at lower-end stores? Alibaba. All of those cheap laptops you see on eBay? Alibaba. All of those cheap clothes you see at souvenir shops? Alibaba. All of Odd Lots? Alibaba. And someone – namely us in the form of OEM and quasi-OEM hardware like the Notion Ink tablet – is buying that stuff. There is a value in having high placement on the site because there are plenty of rubes to buy the garbage they sell. In short, Alibaba is the Chinese-run inflamed sphincter of a vast manufacturing gullet that sprays sub-par and toxic gear, textiles, and parts on almost every other nation in the world.

So now you know how I feel about Alibaba.

I was not surprised to hear that the CEO and those Alibaba employees were taking cash from criminal gangs to receive “gold ratings” on their products. This only makes sense. In an unfettered market, the unfettered will push their way to the top.

Companies like Foxconn are, at best, repellent to our western standards of work/life balance and wage equality but at least they feed and shelter and pay their employees a living wage. They have escaped China’a dark manufacturing past, abandoning in the process the practice of pillorying poor employees by making them stand in front of the factory with a sign declaring their incompetence and violently breaking up strikes – and pushed Asian manufacturing into an ISO-compliant golden age. Companies like Foxconn are at least forced to offer acceptable working conditions out of economic necessity. The companies that Alibaba represents are so small and immaterial that none of this economic gain is possible. The result is akin to SEO at gunpoint with criminals paying for top placement without being vetted by the company at all.

The companies that Alibaba represents are the other, old China. They thrive on cronyism and dubious, if not dangerous, business practices. These companies produce products destined for the landfill and, in their process of manufacture, they poison and destroy the earth.

So my recommended takeaway here is that while Chinese manufacturers and suppliers can be very good – and I’ve met a few who are truly trying to do the right thing and in the right way – there is a dark army of producers who care not a whit for anything other than saving a few cents on a wheel bolt. This race to the bottom mentality then poisons our own expectations, showing us that items that are wildly cheap are actually a better value than something built with some care and craftsmanship.

So keep your eye on Alibaba, friends, because they and their ilk act as middleman to the products you and your family consumes on a daily basis. A little payola is nothing in comparison to the damage they will be able to spread as their garbage engulfs the planet.

On the subject of Alibaba, Morse was very conciliatory, repeatedly praising the job that the Alibaba management team is doing building the business, emphasizing that Yahoo was just a financial stake-holder. He said that Yahoo was in no hurry to name its contractually obligated second board member.

On the subject of Yahoo Japan, there has definitely been a shift in tone when it comes to whether or not Yahoo might divest its incredibly valuable stake. Earlier this month an analyst from Pacific Crest, noted as much in a research report, raising its rating on Yahoo based on the potential for a boost from selling the Japan shares and its price target to a comparative heady $21 a share.

Here’s what Morse had to say today:

“Yeah so we spent an awful lot of time last year, the last 9 months of 2010, doing our homework on all the various possibilities for maximization of this stake. It’s in a terrific position in a market that’s very tough to crack for non-locals, they’re great in everything yahoo does, plus commerce. So it’s a terrific and valuable business and I’m in complete sympathy when investors say, well it’s a public company and we can decide whether or not to invest – I get that and I’m in sympathy, Carol’s in sympathy with that.

“But fact is we do own it and what we need to do is figure out the best way to be sure, whether we keep it or some other transaction was possible, that it would be in the best interest of our shareholders and the other  Y!J shareholders. … So what we said on our last earnings call is we’re now working with our partners – Y!J’s management team, Softbank – to  collaborate and find a way to best unlock the value of this asset. … So we went with a list of things that we’re talking to them about, they’ve added to the list, we’re in good discussion.”

To couch things, he emphasized that Yahoo wouldn’t do anything if they couldn’t figure out a deal with their partners, because the tax liability would make it “very difficult to justify.” Morse’s exact words:

“The one thing I’d emphasize is that I said publicly at our investor event in May of last year, is – selling the stake, some sales require consent and some don’t. A lot of the riskier sales we could do in an open market would come at a substantial discount, on top of tax we’d pay on that, very difficult to justify, and then – what do you do with the proceeds, what’s the use for them, is there something really accretive you can do. So without – the risks of selling and liquidity discount, not having great use of proceeds – I said at the time I don’t see that an outright sale of the asset serves our investors’ needs very well. And I still believe that. We don’t have a good way to offset tax, we don’t have a good way to justify the proceeds. So we’re looking at tax efficient options and working with our partners so it works out well.”

Looks like things could finally be budging in this US-Asian stalemate between Yahoo, Yahoo’s investors, Softbank and — who knows?–maybe eventually Alibaba.

Ma was spotted dining with Taobao CEO Jonathan Luk and other Alibaba executives at Fuki Sushi in Palo Alto last night, and a spokesperson for the company confirmed they were in town for meetings. Another source close to the company, who requested anonymity, said Alibaba was here to meet with several big Silicon Valley companies about potential partnerships with Taobao– and that a meeting with Yahoo was specifically not on the agenda.

Ma’s issues with Yahoo and desire to buy back Yahoo’s shares in Alibaba have been well documented. Also documented is Ma’s desire to explore other US  partnerships, even though the one with Yahoo has turned sour. His ecommerce and epayment properties are so dominant in China that international expansion is the natural next step.

A lot has changed since the last time Ma was in negotiations with Silicon Valley. Back then it was companies like Yahoo that were surging, while China seemed an uncertain gamble. Today, two of the five largest Internet companies are Chinese, and TaoBao and payments company Alipay are two of the hottest private assets on the global Web. As we saw with Tencent’s purchase of Riot Games this month, a decade after most Valley companies failed to do well in China, China is getting more aggressive about expanding in the US.

Carol Bartz’ loss seems to be John Donahoe’s gain. eBay’s CEO Donahoe was cozying up to Ma in China last fall, appearing on stage at a conference together, and apparently swapping caricatures. Donahoe called Ma a good friend, and Ma said, “We have the same dream, the same purpose, face the same group of SME clients… This is the case today, and even more so tomorrow. I believe Alibaba team and Taobao team are always cooperating with the eBay team, and I think in the future we will cooperate more closely.”

If you catch a sighting of the two, drop us a note at tips@techcrunch.com.

[Update: Yahoo PR notes that Bartz is in Barcelona, which is interesting but seems to miss the point of the post. Alibaba has still made a point to come here looking for Valley partnerships and not meet with the one company with which it has a partnership. There are certainly other members of the board and management team who aren't in Barcelona, and considering Alibaba is one of the main forces propping up Yahoo's stock price, you'd think they'd be open to a meeting if Ma were interested. The bad blood between the two is well documented by this point. I've asked Yahoo PR for any sign that's changed. No word.]

But give her credit for one savvy move: Not naming herself to Alibaba’s board as she signaled she would earlier in the year. Or, give the board credit for telling her she wasn’t. Whoever made the decision should be applauded by Yahoo’s shareholders because it would have only made an already intractable situation worse.

Yahoo founder and former CEO Jerry Yang sits on the Alibaba board now and has been a pivotal go-between and the only real palatable representative, as relations between the two companies have deteriorated. But Yahoo had a contractual right to take a second seat in October of this year, and Bartz had said she intended to take it.

You can understand why: Alibaba is propping up a good part of Yahoo’s stock price and the CEO might well want to have some input on that investment. But there were two better reasons not to. The first is that Jack Ma & Co. just loathe Bartz. They want out of the relationship, and she is standing in their way. Add to that some diplomatic gaffes when she first took over as CEO, and she’s a walking symbol of everything Alibaba hates about this tie-up with Yahoo.

The second reason is that American Yahoo having two of five board seats of China’s largest ecommerce company wouldn’t be, let’s say, welcome by the Chinese government. Especially, when you consider Softbank’s CEO Masayoshi Son– who also isn’t Yahoo’s biggest admirer– has a seat as well. Right now Alibaba’s board is made up of two foreign company representatives and two Chinese representatives, and Bartz — or any Yahoo US appointment– would tip that balance to three-to-two.

And that could potentially cause more problems for Alibaba, its employees, investors and the millions of small businesses that rely on it– especially as Alipay seeks to expand its foothold into more traditional small business banking services. Alibaba has been a goldmine of an investment for Yahoo because it gets a stake in the largest and fastest growing Internet market in the world, without having to navigate the country itself. If it hampers Alibaba’s ability to do so– what was the point of the investment?

So it wasn’t too surprising that Bartz didn’t take the seat in October, but it is a bit surprising that two months later, Yahoo still hasn’t named someone to the board. The situation with Alibaba isn’t an easy one. Many Yahoo investors want some sort of tax-advantageous sell off of the assets so they can get a pop and get out of the stock, but Bartz knows full well Yahoo will lose at least a quarter of its value once Alibaba is gone.

The only way this situation gets easier the longer Yahoo stalls? If these rumored Yahoo purchases or private-buyout deals happen. In the event of any deal, Alibaba would almost certainly be free because the company has the right of first refusal if the shares go into play, according to a source familiar with the matter. I think I know what Jack Ma wants for Christmas…

No. You do not. Even if you think Bartz is running the company into the ground, you have to give her credit for not holing up and hiding the way her predecessor Jerry Yang did, for continuing to be herself and holding her head high amid a pretty nasty storm of rumors. She further added that she wasn’t hiring a strong number two, saying she didn’t need one.

The question is, do we believe her? I don’t mean that question as a knock on her; frequently CEOs say they’re not going anywhere or not doing a deal or not launching a product just before they do. But Bartz didn’t help her credibility with her answer to Clamen’s question about whether she was tough to work for. She said: “So change just happens with new management and it’s actually refreshing for all of us.  So 15,000 employees, three people left?  That’s OK.”

Am I totally misunderstanding this or is she saying only three people have left Yahoo in the last year and a half? I think I’ve talked to three this week. I’m not convinced Bartz was a good fit for Yahoo, but I’ve long been a fan of her outspoken, here’s-the-way-it-is management style. And that statement isn’t how things are at Yahoo.

I’m somewhere between those onlookers who loathe Bartz and those who love her. I know a lot of talented executives who have left Yahoo in part because of her. They aren’t haters; they just don’t feel she gets the product or the business. And few metrics have been up during her short tenure, other than profitability which is up 80%, but that’s mostly through cost cutting and frankly, Yahoo had a lot of fat to cut. But on the other hand, I think Bartz is cleaning up a big mess that was a long time in the making. Not even a fictional wonder-CEO could do that in 18 months.

Let’s remember: The business hasn’t grown for six years and Bartz has only been there 18 months. She’s not the one who turned down Microsoft’s $31 a share offer. She’s not the one who bungled an acquisition of Google, YouTube or Facebook. And while we had some fun at her expense over her comments about the technical challenges of blogging– I can tell you from experience Yahoo’s in house content management system was impossible to use. Should it have taken this long and a pile of money to update it? Of course not. But it shows just how asleep the board and prior management was when it came to building a strong modern content creation company– not just a content aggregation company. Eight years after Google bought Blogger, and at least five years after most old media companies embraced blogging platforms like Moveable Type and WordPress, Yahoo is finally figuring it out. You can’t put that on Bartz.

I’ve said it before and I’ll say it again: The Yahoo CEO job has a way of making smart people look inept. Maybe she wasn’t the best pick, but who is this magical better person who’s out there just dying to take her spot?

Back to the Fox segment: There were two rumors Bartz didn’t deny. The first was when she was asked about the takeover rumors and she, as expected, said it wasn’t appropriate for her to speculate. The second was about Yahoo’s investment in Alibaba. She didn’t say they were selling the assets– even when needled by Clamen– but she didn’t say they weren’t  selling them, the way she categorically denied an upcoming ouster or talk of a strong number two joining her team. She definitely signaled that she views Alibaba as a wise financial investment and of little strategic value.

Given how much of global Internet traffic is increasingly coming from overseas, and how brilliantly Jack Ma has navigated infrastructure and political challenges endemic to a country like China, I just don’t see how Bartz doesn’t get how much Yahoo could learn from Alibaba or on a more basic level, the advantages of having someone like that as an ally. For sheer entertainment value, I’d give an arm to see Bartz, Jerry Yang and Jack Ma at a board meeting, when and if Yahoo get its contractually-obligated second seat on Alibaba’s board.

From the transcript:

CLAMAN:  I need to ask you about Alibaba, this Chinese site in which you have a near 40 percent stake that is extraordinarily valuable.  Everyone is wondering are you going to cash in on that.  What are you going to do with Alibaba?

First of all, is it 7 billion in value?  Is it 11 billion?  I can’t get a straight number from anybody.

BARTZ:  Well, I think one of the reasons you can’t get a straight number is it’s a private company, so there’s a lot of people that are doing their best analysis of that.

You know, the company five years ago had some trouble in China and made such a wise decision to move the business out of China and not operate in China cause we see what can happen in some of the issues with that.

CLAMAN:  Meaning Google and that situation.

BARTZ:  And we partnered up with a fantastic entrepreneur named Jack Ma. Five years later, everybody is salivating because it was such a good decision and such a good investment.

So we continue to watch this investment.  We’re on the board of Alibaba.  And we’re also always watching what is best for the shareholders.

CLAMAN:  Would you wait until it goes public or do you not want to miss an opportunity that may be before that?

BARTZ:  You’re always evaluating things like this, Liz.  Any investment you’re evaluating should I take some out now, should I wait and do these things later.

We have a team of very strong financial experts that both work here and advise us, and we will do the right thing for the shareholders, no doubt about it.

CLAMAN:  It must be tempting, though, when you look at — OK, let’s use the low number — $7 billion, if that’s what Alibaba is valued at, to say, boy, you know, this would get some of the analyst heat off my back.

(LAUGHTER)

BARTZ:  You know, I have a job that absorbs the heat.  That is my job.  And so, hey, listen, sometimes it is not fun  that you get a little more heat than you expect.  But we have such confidence in what we’re doing and we have such confidence in that investment that we will not do anything silly because of supposed heat.  We will do the right thing as a management team and the right thing for the shareholders.

Ma is a force. He’s going at half-normal-speed in this video. I saw him speak at the World Economic Forum last week in Chinese and the translators couldn’t keep up with him. They kept tagging in-and-out because he exhausted them so quickly.

Ma says three things are at the core of his company and business philosophy, calling them “his religion” on the show. The first is that technology isn’t Alibaba’s core competency, rather it’s the company’s culture. That first bit is the surprising part– Ma goes on and on about how untechnical he is. That’s something I’ve never heard any executive of a tech company say, even if they aren’t technical. Ma says “I know nothing about technology,” adding he can’t write code and the most he can do is send and receive emails. That takes some confidence as a leader to be so bold about what you don’t know.

The second element of his “religion” is that shareholders come last– the most important groups are customers and then employees. He says matter-of-factly that customers are the ones who pay him and employees are the ones who stick with him but shareholders come and go. (Note: There’s some interesting subtext, whether it was intentional or not. The largest shareholder is Yahoo, who Ma would very much like to go.)

The third element is that “Small is beautiful”– strange coming from the guy who built one of the largest Internet companies in the largest online market in the largest country in the world. Few things are “small” in China and fewer still are praised for being small. But Ma’s platforms are powered by millions and millions of small business people who couldn’t do business any other way in China. He says that in the US, real world business infrastructure is so good that ecommerce is “dessert” but in China it’s “the main course.” He thinks the future of China is empowering lots of entrepreneurs in the classic, small-business-man sense of the word. What China needs most he says are hundreds of millions of jobs, and he thinks lots of small businesses are the answer not more giants like Alibaba.

Technology is merely a tool; shareholders are the least important constituency; and small is better than big. This is how Jack Ma views the Internet and the world differently than a typical Valley CEO. Given he’s built the largest ecommerce and online payment platforms in China while most Valley companies have failed to get off the ground, the difference in mindset might well be part of the reason why.

The full video is here, and there’s a clip below.

What the hell? Since my blindingly obvious post yesterday that said the post-2000 crash was worse for tech than this recent one was somehow considered controversial, how about an actual controversial statement to start this morning: Why Yahoo shouldn’t rush to fire Carol Bartz.

Yesterday, we wrote about the Twitter dog pile on Bartz, but I doubt the Yahoo board or management are feeling too much pressure from that– they’ve got actual shareholders to contend with and those shareholders aren’t happy. Many bought into Yahoo assuming there was no way a public traded company could fend off Microsoft forever and now they’ve been stuck in a stock that’s barely budged from $13 a share in recent days and hasn’t gotten over $20 a share during her tenure. (As a reminder Microsoft offered $31 per share.) People are looking for catalysts to make the stock pop and get out.

That was no doubt behind a lot of the jousting about whether Alibaba might buy all of Yahoo to settle its dispute last week– a deal that doesn’t seem to be happening, Alibaba and Yahoo for all the back and forth are still stuck in their uncomfortable marriage for the sake of the kids, or in this analogy, Yahoo’s shareholders. As we wrote last week, Bartz would be a fool to sell before Taobao or Alipay go public and she may have mishandled an already tense relationship but she is not a fool.

The other big rumor that bankers are pushing is that Bartz will be out in 18 months, and that Yahoo is currently looking for a number two to groom over that time period and smoothly slot into place once Bartz four-year contract is up. It’s a remarkably consistent narrative that several sources have told us. The problem is the root of all of the speculation is coming from bankers, and that could mean they just want the market to think she’s getting ousted. That’s how low the admiration for her stint on the job is.

Here’s one reason Yahoo shouldn’t move too hastily here: What great candidate wants this job now? Yahoo’s corner office has been like Ted McGinley to sitcoms– a career killer. Terry Semel? Respected as a mogul of Hollywood before Yahoo. Jerry Yang? Respected as one of the Valley’s most iconic founders before returning to be CEO of Yahoo. Carol Bartz? Respected for turning sleepy Autodesk into one of the best performing software stocks of the early 2000s, lauded by John Chambers as one of the best CEOs in Silicon Valley, rumored to one day be running for office because she was so popular…before becoming CEO of Yahoo.

It’s hard to find three more iconic, distinct tropes in the West Coast CEO landscape than the Hollywood mogul, the young, geeky Dot Com genius or the hard-charging, take-no-prisoners, battle-tested business software executor. And yet, running Yahoo has made them all three look incompetent. It’s hard to believe all the problems have rested with the CEOs, given the differences in style, strengths and strategy. Don’t get me wrong: All three of these CEOs genuinely screwed up. But there is something about Yahoo’s corner office that exposes your weaknesses as a leader and a strategist.

Either the board isn’t giving these people the support and leash to truly change within Yahoo or in the case of Yang turning down Microsoft– the board wasn’t there to act in the best interest of the shareholders. On the other side of the CEO ladder, Yahoo is notoriously fragmented, siloed and gutted from the last decade of uncertainty and losing new markets to Google first and then Twitter/Facebook. I don’t know if it’s still true but at one time Yahoo’s stock price was everywhere in its Sunnyvale headquarters — on the employee Intranet “Backyard,” on monitors in the lobbies, even on the displays on printers. The double-edged sword of being a publicly traded company where nearly everyone has options is that a soaring stock can be a constant pat on the back; but when you have a daily reminder that Wall Street values you for mostly cash and your Asian properties it’s like a daily kick in the groin.

There are a lot of opinions on why Bartz hasn’t done well at Yahoo. According to reports from a Goldman Sachs analyst event, she blames users, an old product and too much defecting talent. Most ex-Yahoo managers I’ve spoken with blame the fact that she doesn’t know product or advertising. Both are probably true. But there’s clearly something about the institution that sets people up for failure, and the responsibility for that lies with the people who have played a role in each hiring and firing– the board. Why should shareholders expect any better from them on the next candidate?

The Chinese aren’t exactly prone to emotional outbursts in front of Western reporters. In China, if you insult a business partner in the press, there’s likely a calculating reason behind it.

Witness the latest volley by Alibaba.com’s CEO David Wei towards Yahoo, which owns 40% of the parent company for his Chinese ecommerce powerhouse. “Why do we need a financial investor with no business synergy or technology?” Wei said to Bloomberg on Friday.

Indeed, the idea that Yahoo and Alibaba have a “strategic partnership” has been stretched pretty thin since those days back in 2005 when Jerry Yang and Alibaba founder Jack Ma walked the grounds of Pebble Beach and negotiated a deal by which a small Alibaba would take over Yahoo China, in exchange for Yahoo getting 40% of the Alibaba Group. But now, without its own search engine, any idea that Yahoo would give Alibaba a strategic advantage is laughable, Wei said.

It’s not the first time Wei & Co. have mouthed off to the press about their largest shareholder: Eight months ago Alibaba executives called Yahoo “reckless” for backing Google in its fight with the Chinese government. Meanwhile, Yahoo has criticized Alibaba for Yahoo’s plummeting search marketshare in China, publicly flirting with the idea of selling the property off.

What’s going on behind the scenes? In short, Jack Ma wants Yahoo out of his company, but Yahoo knows it would be crazy to sell before two of the most lucrative divisions of Alibaba, Taobao and Alipay, go public. And according to several sources close to both companies Carol Bartz is making a tense situation worse. Bartz has been widely criticized for Yahoo’s lack of stock appreciation, revenue or traffic growth during her almost two-year tenure as Yahoo CEO. But if things continue on this course, business professors may look back at see her biggest failing was squandering the relationship with Alibaba.

First some background: The Alibaba deal allowed Yahoo to moonwalk away from the kinds of thorny censorship issues Google and other US properties have had to deal with in China and still profit off the country’s runaway Internet growth. Alibaba spun off Alibaba.com into a $10 billion (77.69bn HKD) public company, and has two phenomena in the wings: Taobao, an eBay-like marketplace with 170 million users, that dominates 80% of China’s ecommerce market, according to several reports. Taobao’s marketplace is already 70% the size of eBay and is growing at a clip of 70% a year. Then there’s Alipay, which is the PayPal equivalent in the country, with over 300 million users and annual growth of nearly 100% per year. Alipay’s annual transaction run-rate is a staggering $64 billion. Stifel, Nicolaus & Co. estimate that Taobao could be worth another $10 billion and Alipay could be worth nearly $5 billion.

Of course none of these businesses has much to do with Yahoo’s core business, and Yahoo China has withered away amid Alibaba, Taobao and Alipay’s success. Even before Yahoo got out of search, there was little real strategic relationship between them but it was one hell of a lucky move, financially speaking. Say what you want about Yang’s tenure as CEO, he excelled at managing the relationship with Ma, and is still on the board of Alibaba Group. Whether savvy or blind-luck, the deal is also helping keep Yahoo’s stock afloat five years later. Research firm Stifel, Nicolaus & Co. says that as much as 85% of Yahoo’s stock price is attributed to the value of Yahoo! Japan and Alibaba, going so far as to call Yahoo an Asian Internet play…. that also has a US business.

By some analyst accounts, the Asia business is the one area where Yahoo is killing its Valley competition. So you’d think that Bartz would be bending over backwards to make sure the relationship is going well, right? Wrong. Sources close to Yahoo and Alibaba say that when Bartz entered the job two years ago, she didn’t reach out to Ma or Wei and when Ma finally came to Sunnyvale to meet with her, she dressed him down in front of his management team criticizing what Alibaba had done with Yahoo’s China portal. Said one person close to the Alibaba side of things, “She displayed the diplomatic skills of a donkey.”

Forgive the mixing of animal metaphors, but that’s called strangling the golden goose. Bartz was hired to be the “anti-Jerry” – direct, decisive and not mincing words. I’d argue that’s what the coddled, complacent US operations of Yahoo needed. But hard-charging, successful Alibaba didn’t need a lecture from a party they already resented giving such a sweetheart deal to five years ago. You think Bartz can be untactful on stage with Michael Arrington? Imagine her in a delicate Chinese negotiation. Yowza.

It’s led to an ugly marriage between the two—which has become more evident as Alibaba’s team continues to speak out about the lack of strategic value to the relationship. It’s clear Ma wants the relationship severed, and it’s increasingly coming up in Yahoo’s meeting with Wall Street analysts. The more Bartz angers the Alibaba team and criticizes the Chinese government, the more ammo she gives Ma to drive a wedge between the two and even potentially force a sale if it’s deemed to be a poisoned relationship. It’s not too late to wake up, lavish praise on Ma –whether it’s genuine or not– and focus on the US business.

For Yahoo’s part, it has told analysts the tax hit it’d take on the transaction is the biggest barrier, but considering how much of Bartz’ compensation is tied up in boosting that stock price and how much of that stock price is being kept afloat by Alibaba, I can’t imagine tax implications are the only reason Yahoo is loathe to sell.

As far as Wall Street pressure to sell-or-not-to-sell, sources say there are two camps. Some buyers who bought Yahoo shares when the Microsoft takeover was in the offing, are looking for something—anything—to boost the stock from the moribund $13-range. A several-dollar-per-share dividend would be better than nothing, some Yahoo bears feel. But to most people, selling off Alibaba’s stake before Taobao and Alipay go public would be tantamount to throwing in the towel and scrapping Yahoo for parts.

It’s hard to know what Bartz is thinking here. I’ve always been a fan of her no-nonsense, no-sacred-cows style, but if she wants to keep Yahoo from being cheap takeover bait, she needs Alibaba and needs Ma. She might even- gasp!- be able to learn something about building a consumer Internet powerhouse from them. As the tension keeps growing and Alibaba executives keep sounding off, Yahoo will have to decide once and for all if it is a franchise worth saving or simply worth more split into pieces.

BizArk, a Chinese e-commerce company specialized in international trading solutions, has now made its debut and announced that it has secured ‘tens of millions of dollars’ in financing from IDG Ventures (up to $40 million according to several reports).

The press release announcing the investment is one of the strangest I’ve ever read.

In it, BizArk says that outsiders speculate about the possibility that IDG Ventures is financially backing BizArk to make up for its failure to invest in rival Alibaba. The company cites a two-year old quote from one of the firm’s senior VPs to back up those speculations.

Maybe I’m missing something, but it seems peculiar for a company that has just raised tens of millions of dollars from an investor to point out its partner’s apparent failure to correctly assess an investment opportunity in a competitor years earlier.

The company also remains vague on its international partnership agreements with the likes of Google and PayPal, for no apparent reason.

From the press release:

Besides IDG, BizArk also attracts the attentions of big companies, such as Google, TrustWave, Paypal and LinkShare.

It is reported that, BizArk and Google have attained a cooperation to build up a tailored platform for trading companies which have a narrow product range but intend to develop overseas markets according to its product characteristics and market situation.

Reported by whom? And what does this cooperation with Google entail, specifically?

At the bottom of the press release, finally, the company also casually mentions that its CEO is Jason Gu, former Google general manager of the Eastern China Region, and that it currently employs some 400 people.

Bizarre.

This deal comes off of Alibaba’s recent acquisition of U.S. e-commerce company Vendio. Auctiva provides a variety of listing, marketing and management tools as well as image hosting and storefronts to sell on online marketplaces like eBay.

Alibaba says that the acquisition will help provide tools and resources for U.S. small businesses looking to leverage e-commerce. Auctiva’s platform will be integrated with Alibaba’s online marketplace AliExpress, allowing users to list product in eBay as well. The company says the combination of both the Auctiva and Vendio acquisitions brings more than 250,000 new customers to the Alibaba.com family of products.

Editor’s note: This is a guest post penned by Michael Cole, Managing Director of RightSite.asia, China’s largest online marketplace for commercial and industrial real estate. Cole has also successfully launched, grown and profitably exited from media ventures in China.

After a modest amount of time observing China’s economy it becomes clear that the government likes to arrange organized competition in industries it considers strategic. Thus the country gets three major airlines—China Eastern, China Southern and Air China—as well as three major mobile phone networks in China Mobile, China Unicom and China Telecom.

Now, with the recent announcement of two major new search engine companies, it appears that search is joining transportation, phone networks and Internet service providers as a strategic industry to be managed more directly by the government. And maybe China will soon have three search giants to match up with its telephone and airline triplets.

The first search engine deal announced two weeks ago was an alliance between ecommerce giant Alibaba and online portal Sohu to upgrade Sohu’s existing search product, Sogou.com. In a statement on Monday, August 9th, Sohu announced that Alibaba and Yunfeng, an investment fund cofounded by Alibaba’s chairman, Jack Ma, would be buying 16 percent of Sogou.

Another 16 percent of the company would be invested by a fund affiliated with Sohu chaiman Charles Zhang. And Sogou could use the help. In a search market dominated by Baidu with a 70% share, and Google with 24.2%, Sogou currently ranks third, but has only 0.8% market share according to recent market research by third party analysts.

The second, and more surprising deal was a link-up announced two Fridays ago between Xinhua and China Mobile to start yet another search engine. Xinhua, a news agency belonging to the central government which also acts as a propaganda organ and sometimes intelligence gathering body, and China’s largest cellular carrier seem like unusual partners for an Internet venture, and the exact terms of the transaction have yet to be announced.

The New York Times described the deal as follows:

In an apparent bid to extend its control over the Internet and cash in on the rapid growth of mobile devices, China plans to create a government-controlled search engine.

While these two new search engine ventures being announced in a single week, particularly so closely following the recent Google controversy, could be a coincidence, very few major transactions in an economy that is still largely government-controlled happen in such a random way.

Although Baidu, Sohu and Alibaba are all private companies, and thus very different creatures from state-owned enterprises such as China Mobile or the airlines, in practice China’s government requires any large media enterprise to be closely aligned with the bureaucracy and these major firms often serve as unofficial market champions for the nation, particularly once they have gone public and become internationally recognizable symbols of the country’s media markets.

At the same time, the government is careful not to have any market dominated too much by a single company and it actively works to encourage (and organize) some competition among industry heavyweights. Thus the airline industry was split into three companies from a single parent, and part of the 3G market was set aside for the lesser cell phone players, China Unicom and China Telecom.

Now a similar scenario seems to be appearing in search and it most likely means that the government is taking search engines seriously as a strategic national interest. (Bad news if you are Google). In a story that Xinhua published regarding its new joint venture with China Mobile, the news agency portrayed its search engine enterprise in a directly political manner.

According to the report, the new search engine is intended to “better serve the work of the Party and the nation and to practically protect national interests … and to expand the reach and the ability in and outside China of the country’s mainstream media to guide public opinion.”

While that mission statement would seem to doom the new search product with consumers, the massive market penetration of China Mobile could give the new project a significant advantage with mobile users.

While it is too early to tell what will happen in China’s search market, if the moves last week were officially sanctioned measures to “harmonize” the market, there could be some moves in the pipeline to curb Baidu’s dominance and provide a boost to the new players. This could take the form of reserving parts of newly developing markets for the newcomers or through other measures designed to keep a perceived competitive balance in the market.

The other side of this equation is that if this recognition of search as a strategic industry is happening as speculated here, then opportunities for Google or other international companies to achieve gains in the market are likely to all but disappear.

While China welcomes foreign investment in most industries, it is still ambivalent about international involvement in the media sector, particularly with regard to consumer-facing products. Anything which smacks of mass media is likely to be all but closed off to foreign involvement, and search, with its ability to lead users to new information may be seen as too strategic to be left to the open market.

As sayings go, that’s not especially catchy. But it is devastating. And true even if you count Google’s recent actions as a China morally-based forfeit. The stark truth is there are already more Chinese than Americans online and China is only at about 20% Internet penetration. And yet, so far, Yahoo is the only one to play this market well, by swapping its local assets and $1 billion for a 40% stake in Alibaba back in 2005.

But a funny thing has happened between my last trip to China in October of last year and my current trip. The Silicon Valley Web 2.0 gang has invaded. OK, “invaded” is the wrong word, it’s more like gingerly “waded into the pool.” Most of the entrants are being very cautious, staying below the radar with limited, hedged plans. But there is a clear trend of Web 2.0 testing the Chinese waters—and hoping it doesn’t make the mistake the first generation made.

The picture above– snapped at a Beijing newsstand where Scarlett Johansson and Sarah Jessica Parker were the only other faces I recognized– is a good metaphor for the kind of hey!-don’t-look-at-us!, easing-into-the-market approach the Web 2.0 generation is taking. (Note the word “metaphor.” I’m not implying Facebook planted this or even pitched the story to what I understand is an English language learning magazine.)

There is Playfish’s office, the Zynga acquisition of XPD Media and Hulu CEO Jason Killar’s recent visit to Beijing where he announced an impending China launch. Just last weekend Max Levchin of Slide hosted a developer day at the company’s Shanghai office. Who even knew Slide had a Shanghai office? (It’s interesting that Levchin grew up in Soviet Russia just like Google founder Sergey Brin but apparently doesn’t have the same hang up with the Chinese government.) Facebook is reportedly opening an office next and I spoke with several people over the last week who said they had gotten calls from headhunters.

Will Silicon Valley Web 2.0 companies do better than the 1.0 generation? It depends on what the community has learned from such abject failure. A few lessons seem obvious, judging by the new, more cautious approach.

Lesson #1: The Valley learned it can’t be cocky. No one is making bold statements about taking over the Chinese market the way Web 1.0 leaders did. I remember a keynote by Meg Whitman in the early 2000s where she boasted that the “Sun never sets on eBay,” so assured of its future in China. Yeah, that didn’t go so well. No one is swaggering into China with the same bravado today. China has developed more $1 billion-plus Internet companies than any other market and most of them started out as US copycats on features, where they excelled was in process, execution and business models. Today, Web entrepreneurs get that.

Lesson #2: It’s China’s house, you have to play by China’s rules. A lot of people hate this one, but it’s just reality. You know that scene in “Jerry Maguire” where Tom Cruise storms out of the office and says “WHO IS COMING WITH ME?” and pretty much only Renee Zellweger joins him? That’s pretty much what Google’s pull out of the China market in March was. Since that date, Web 2.0 companies have only upped their China hires.

Lesson #3: Hire first, launch later. Most of these offices are just development offices, taking advantage of local talent. But make no mistake: This is a savvy way to assess the market and build connections. Talent isn’t that cheap in Beijing and Shanghai relative to the rest of the emerging world and the price is escalating. Call it the Hulu model– the company had an R&D division in Bejing long before it announced its recent intention to actually launch service in China.

All-in-all these three lessons make for a smart strategy. China is the only country outside the United States that’s given birth to several billion-dollar-plus Internet companies and there’s some $20 billion in venture capital sloshing around this country, by some estimates, that’s anxious to find the next local crop. There’s no question there’s a lot of momentum investing here and a lot of these startups will fail. But whenever you have this much activity and 400 million people online, there will be more big hits too. This is simply not our market for the taking.

But where the Web 1.0 generation was too cocky, the question is whether the Web 2.0 generation is being too cautious. Online games and virtual goods are already big markets in China—bigger than in the US in fact. And there are already big local iterations of things like Facebook and Twitter. Is it already too late for some of these companies?

Clearly, the Valley is still trying to figure out how it plays in China. At least this generation is trying to learn, listen and make friends first and colonize later.

There are just so many angles to this story, and nearly everyone seems to have an opinion. Two of those we covered earlier in the week included Sarah’s take that Google’s actions were more about business (or a lack thereof) for the company in China. Paul, meanwhile, was quick to dampen the cheers from Silicon Valley that Google was doing the right thing, arguing they’re four years too late for this new stance to have any moral weight. Mike followed this up with a comment on the post, “The problem with un-censoring now is that it further reinforces that the decision was the wrong one from the beginning, and that they knew full well it was wrong even when they made it.” All of that rings true. But I disagree.

My position is a simple one that is twofold: it’s never too late to do the right thing. And it’s never wrong to do the right thing.

The people hooting and hollering immediately following Google’s post on the matter may have been being a bit naive about some of the causes behind this move, but that doesn’t make their immediate reaction that this is great news, any less true. Should Google have made concessions to China four years ago, veering off from their “don’t be evil” philosophy? No. But that’s easy to say when you’re not trying to run a company that grew from a project in a garage to a multi-billion dollar business with users all over the world and public shareholders looking at the bottom line.

Many accounts have Google’s initial China decision boiling down to CEO Eric Schmidt convincing co-founder Sergey Brin that it was the right thing to do for the business. Further, there was apparently talk that with a foothold in China, Google would be in a better position to change things from the outside in. That argument, along with point 8 in Google’s “Ten Things Philosophy” (The need for information crosses all borders), may have convinced him to cede points one (Focus on the user and all else will follow.), four (Democracy on the web works.), and six (You can make money without doing evil.) Without making the filtering concessions, Google simply would have never have been allowed to operate in China.

Obviously, the outside in approach to changing things didn’t work as well as Google may have hoped, but it may not have been a total disaster either. After all, while Google may not have had a strong foothold in the Chinese search market from an overall perspective, indications are that they did have a very solid hold of the better educated, young elite class in China. Those are the same users that are likely to one day be running some of the most powerful technology companies in the country. And they’re apparently not happy about the prospect of losing the ability to use Google. Are they going to overthrown the Communist government? Not likely. But they could add significant pressure in the push to open things up more.

The sad fact of the matter is that while Google may have wrongly bent to China, so too have many companies in the past. And those companies are still doing it. And many more will in the future. Google no longer is, and assuming they stick to their word, no longer will. Again, no matter the reason, and no matter the timing, that means something.

And it especially means something coming from a company as big and as powerful as Google. Rival Yahoo has already come out in support of Google’s new stance, and that’s despite their substantial ownership in the large Chinese Internet company Alibaba (which criticized Yahoo’s praise of Google). And so has no less than the White House. It’d be nice to see Microsoft come out in support as well (especially since their software is apparently to blame for the hacking), but they’re not doing that. But thanks to Google’s new stance on the matter, they’ll be criticized for it more than they would have been in the past. Google’s position may not hold the moral high ground, but it is shaking things up, and that matters more.

Also, I don’t care who you are or what your current market share is, it takes balls to walk away from China’s 1.3 billion potential customers and fast-moving economy.

With technology, and the Internet in particular, becoming more integral in all of our daily lives, this entire situation could be just a sliver of what’s to come. One blog post from one Internet company has ignited a debate that’s really one we should have never stopped having. And it’s now being played out in a type of information warfare ranging from China all the way to the White House (think it’s any coincidence that China restored text messaging service in Xinjiang today after some six months of blackouts).

Google did the right thing. And as long as they keep doing the right thing, the “why” will continue to matter less. And hopefully it will send the more important message to other companies: it’s never too late to do the right thing.

[photo: flickr/pamhule]

George had the opportunity this weekend to attend Chinese e-commerce behemoth Alibaba Group‘s 10 year anniversary celebration, dubbed the “Alifest”.

Alibaba is best known for its international B2B e-commerce and sourcing market place Alibaba.com, but also operates Taobao – the “eBay of China” and largest C2C Internet retail web site, Alimama – an online advertising exchange and affiliate network – as well as Alipay, China’s most popular third-party online payment system modelled after Paypal but offering additional features such as escrow services.

Alibaba’s chairman Jack Ma, a former English teacher, founded Alibaba in 1999 out of his Hangzhou apartment. Ten years later the company has grown to China’s second largest Internet company, after digital entertainment giant Tencent. His company Alibaba.com’s 2007 IPO on the Hong Kong stock exchange was the second largest Internet offering ever after Google’s debut on NASDAQ in 2004.

Since 2005, Yahoo! is a strategic shareholder when it acquired 39% of Alibaba Group for US$ 1 billion. In return Alibaba operates the portal Yahoo! China, but the secondary role Yahoo! China plays for Alibaba became evident when Ma shared his vision for the next 10 years of Alibaba during this weekend’s press conference. This was once again underscored yesterday when Yahoo! sold $150 million worth of shares in Alibaba.com.

Jack’s dream is to focus on empowering and encouraging small and medium sized enterprises (SME’s) across the globe and it centers around 3 major goals for the next 10 years:

Goal 1: 10 million people “work at” Alibaba

By “working at” Jack symbolically referred to millions of SME entrepreneurs that will not literally be employed by Alibaba but are turned to “netrepeneurs” and independently utilize and work online with Alibabas trade platforms and software solutions:

Alisoft was established in January 2007 and offers software as a service solutions for SME’s. In July 2009, Alisoft was merged with Alibaba Group R&D Institute to lay a solid technology foundation to further develop Alibaba Group’s businesses. At the same time Alibaba Group this weekend announced the establishment of a new subsidiary focusing on cloud computing. In the medium run, it is evident that Alibaba will strive to emerge as a leading software solution provider for SME’s, eventually competing with Western players such as Salesforce.com.

Goal 2: 100 million new jobs created worldwide by Alibaba

A megalomaniac target at first glance, this could very well become reality when considering Alibabas resources and Jack Ma’s obviously wide-reaching personal connections that became more apparent to me through the course of Alifest.

In May 2007, Alibaba.com introduced the Ali-loan program offering financing to small Chinese businesses in partnership with leading Chinese banks. This model was now hinted to be extended across other countries in cooperation with Muhammad Yunus’ Grameen bank. The second corner stone to achieve this goal involves Alibabas training department, Ali-Institute that was upgraded this July to become a new profit-oriented business unit under Alibaba.com.

During the cleverly staged Alifest program speakers such as Nobel prize winner Muhammad Yunus, former president Bill Clinton (both over video) and Starbucks CEO Howard Schultz underpinned the importance of fostering SME development across developing nations and endorsed Alibabas global efforts. This is quite remarkably for a Chinese company. Provided, you still consider it as such: “In 10 years we wont make differences between local or international companies any more, but only between differences in integrity”, Jack Ma said during his speech this weekend.

All points considered Alibaba is indeed in a powerful position to shape the worlds economy in the coming decade. Taking Alibabas already undisputed status among SME manufacturers in what is soon to become world’s largest economy, even the third proclaimed goal by Jack Ma can seem plausible:

Goal 3: 1 billion people trading on Alibaba Group’s platforms

The roadway to Alibabas most eager goal was visualized to us impressively when Alibaba.com’s CEO David Wei gave us an exclusive tour of his company’s new headquarters. (Which by the way also has a basketball court inaugurated by another of Jack Ma’s friends Kobe Bryant, who was also present in Hangzhou this weekend)

David presented us Alibaba’s realtime trading statistics generated from the three pillars of its business: international trade, domestic Chinese wholesale and domestic Chinese retail. (the according graphs can be seen in the picture above from left to right).

During the time of our visit last Friday evening at around 7pm Chinese time, 2.87 million concurrent users were active on Alibaba.com’s B2B portal. According to David the daily average concurrent user number is 4 million, around 10% of its 42.8 million worldwide registered users. The groups domestic C2C e-commerce marketplace Taobao holds around 78% of the online consumer market in China. As of mid-2009, it served 156 million registered users. Transaction volume on Taobao reached nearly US$ 11.8 billion in the first half of 2009, and by that exceeded the largest retailer in China in transaction volume during the same period.

David continued to say that “Alibaba’s combined trading statistic give us 3-6 months lead time to predict Chinas domestic trade and export volumes”. These are without doubts immensely powerful insights to possibly the biggest driver of our current world economy. Not without reason, Alibaba’s founder Jack Ma was one of the first to recognize the economic downturn in February last year, when he predicted “a though (economic) winter is coming, dark clouds are forming and the thunder is coming closer” during the annual Alibaba all-employee conference. “Today, the darkest period for Chinese exporters is over”, Alibaba’s CEO David Wei confirmed to us.

I asked David to tell us more about AliExpress – a new international wholesale platform for small-sum orders from its Alibaba.com database of Chinese manufacturers. He confirmed “the platform is still in beta but bound to launch in rather weeks than months from now”. The service offers minimum orders as low as 1 item, escrow payment and delivery with full tracking. Advertising “factory prices on even the smallest orders” the service is de facto a B2C marketplace just like Amazon and in part eBay that connects the Chinese manufacturers on Alibabas existing B2B portal Alibaba.com with the US consumer market. It will also be the first international roll out of Alibaba’s online payment and escrow system Alipay now competing with PayPal China in fight for Chinese SME merchants. Alipay currently facilitates about 4 million online payments worth up to US$100 million per day. It surpassed 200 million registered users in early July 2009.

With AliExpress the company for the first time attacks eBay directly in its home market. In China the US company already lost against Alibabas Taobao, giving up its domestic eBay platform and partially selling it to Chinese Internet group TOM Online in 2006. Not included in that sale, however was eBays and PayPals cross-boarder business of Chinese merchants selling to US consumers, that continues to be operated by PayPal China itself. This remaining eBay asset is now under serious threat, with Alibaba entering the B2C export business.

The move nevertheless comes with many risks for Alibaba. Only in December last year, Alibaba’s competitor Global Sources Direct, a division of NASDAQ-listed online sourcing platform Global Sources, announced it would discontinue its wholesale services. The platform was established in 2005 as a joint venture between Global Sources and eBay. A major part of the failure was attributed to the fact, that in such a cross national market place setting, it is impossible for its operator to guarantee quality, availability and delivery times. Instead it has to rely on the goodwill of its merchants, which in a developing market like China is a huge challenge. It remains to be seen how Alibaba can solve this problem better than its competitors.

Additionally to its international challenges Alibaba Group is under constant attack from rising Chinese rivals such as Baidu’s new C2C e-commerce platform Youa. Since the end of last year China’s number one search engine Baidu.com has blocked all Taobao merchants offers in its natural search results, leading to a huge loss of search volume. In retaliation Alibaba Group, previously one of the biggest ad spenders on Baidu, stopped all its PPC campaigns.

In the “Art of War”, Chinese military strategist Sun Tzu writes “concentrate your energy and hoard your strength”. However, Alibaba’s Jack Ma seems to ignore this advice by competing on multiple battlefields both at home and abroad, potentially stretching his company’s resources too thin. Yet the man reinforced his modesty in yesterdays closing speech when he said “looking back we are now a big company, but looking ahead we are still a very small company”. Having seen Ma passionately in action this weekend, it is clear that he’s lost none of the tireless energy that has made him successful, instead gaining in charisma and determination that will be necessary for the next 10 years ahead.

Yahoo announced a little over 4 years ago that it would purchase a 39% stake in the e-commerce giant’s parent company for US $1 billion – which it will be retaining – plus Yahoo’s Chinese assets (worth about US $700 million). Alibaba in return took charge of Yahoo! China, while Alibaba’s founder Jack Ma remained in charge of Alibaba Group. Yahoo China recently underwent a significant restructuring, during which its popular classified listings service Koubei was taken and moved to Taobao.com.

Partly because of the restructuring, tensions started to lurk between Alibaba Group and Yahoo, and they recently became even more strained when insiders also revealed that Yahoo’s new CEO Carol Bartz was far from being satisfied with the way Alibaba has handled its Chinese portal.

To add fuel to the fire, Alibaba CEO Jack Ma confirmed last weekend at the company’s 10-year anniversary celebration that Alibaba has so far not yet decided if and how to manage the search engine’s algorithm in China after the cooperation agreement between Yahoo and Microsoft, even though the deal was considered to be global. We earlier reported how China could potentially throw a wrench in the Microsoft-Yahoo deal, because of a Chinese law that went into effect in August last year and essentially gives the Chinese government regulatory oversight over any merger that “involve acquisitions of Chinese companies or foreign businesses investing in Chinese companies’ operations.”

Interestingly, Jack Ma also sold 13 million of his shares, or less than 5 percent of his total direct and indirect holding, in Alibaba for about HK$273 million (US $35 million) just last week.

We’re trying to find out more about Yahoo’s plans in China and will update when we do.

Update: a statement from John Spelich, VP of Alibaba Group’s International Corporate Affairs

“We are pleased to learn of the Yahoo! decision because having broader ownership of Alibaba.com with increased liquidity and support among institutional investors is what Alibaba.com hoped to achieve when it released the cornerstone investors.”

We’ve also confirmed with a Alibaba spokesperson that UBS AG will handle the sale of the shares and line up several institutional investors to get the shares sold by tomorrow morning.